Inverted Duty Structure GST

Inverted Duty Structure means a situation where the rate of tax paid on inputs goods/services is higher than the rate of supplies. Inverted Duty under GST It’s a situation where taxes paid on purchases is higher then the taxes paid on the supplies.Refund of Inverted Duty Structure GST.

For Example : – ABC Ltd who deals in manufacturing of Inverter , for which company buys input raw material at 18 % say GST paid is Rs. 100000/- . The final product is inverter on which say GST Rate is 12 %  and GST payable is Rs. 65000/-. Is this situation this is inverted duty structure of GST.

Example : – X Ltd who deals in manufacturing of generators , for which company buys input raw material at 18 % say GST paid is Rs. 200000/- . The final product is Generator on which say GST Rate is 12 %  and GST payable is Rs. 130000/-. This is inverted duty structure of GST.

Refund of Inverted Duty Structure GST

Refund of Inverted duty structure is outcome of accumulation of surplus tax GST credit. Its because of GST rate on outward supply is more than GST rate on inputs. Due to this GST credit gate accumulated in GST ledgers.

Legal Provision of Refund of Inverted Duty Structure GST

Section 54(3) of the CGST Act 2017 provides (relevant extracts)

”Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

(i) zero rated supplies made without payment of tax;

(ii) where the credit has been accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the government on the recommendation of the Council:

Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

Formula for Refund of Inverted Duty Structure GST

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) * Net ITC / Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions-

(a)”Net ITC” shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

(b) “Adjusted Total Turnover” shall have the same meaning as assigned to it in sub-rule (4).”

By reading the definition of Net ITC it can be inferred that refund shall be restricted to the taxes paid on inputs only. It does not cover input services and capital goods within its purview.

Example X Ltd Turnover of inverted rated supply is Rs. 500,000/- and input tax credit is Rs. 100,000/- and adjusted total turnover is Rs. 10,00,000/-

Apply Refund of Inverted Duty Structure GST

1. Under FORM GST RFD-01A Refund claims on account of inverted duty structure need to be filed quarterly / Monthly basis.
2. Refund shall be applied only after filing of GSTR1 and GSTR3 B return
3. After checking calculation GSTR refund need to filed under Inverted Duty Structure GST
4. Access the GST Portal. Navigate to the Services > Refunds > Application for Refund option. Select the Refund on account of ITC accumulated
5. Debit GST Electronic ledger once refund claim in filed
6. Documents of declarations , CA certificate etc. need.